In its recent judgment in Stanford International Bank Ltd (in liquidation) (Appellant) v HSBC Bank PLC (Respondent) [2022] UKSC 34, the Supreme Court struck out a £116m claim for breach of the Quincecare duty on the basis that the claimant had suffered no loss.

Background facts

The salient facts of the case are as follows:

  1. Stanford International Bank (“SIB”) was an Antiguan bank run by its ultimate beneficial owner, Mr Allen Stanford (“Mr Stanford”).
  2. SIB was operated as a Ponzi scheme which collapsed in 2009.
  3. The bulk of SIB’s business was the sale to international customers of Certificates of Deposit which were sold as investment products offering a good rate of return. Those who invested in the certificates were led to believe that the funds they deposited would be invested by SIB in a diversified low risk portfolio of assets and securities.
  4. When customers requested withdrawals of money from SIB or when their product supposedly matured, the payment was made from capital invested by other customers.
  5. The joint liquidators of SIB were appointed in April 2009 by the Antiguan court.
  6. HSBC provided correspondent banking services for SIB. The four accounts provided in different currencies were frozen by HSBC on 17 February 2009 following news that Mr Stanford had been charged by the SEC (Securities and Exchange Commission).
  7. SIB’s case against HSBC involved allegations that during the years when SIB had operated the bank accounts, there were many warning signs that put HSBC on notice that SIB’s business was a fraud. It asserted that by 1 August 2008 at the latest, HSBC was under a duty of care, known as the Quincecare duty, to refuse to accept Mr Stanford’s instructions as to what to do with the balance standing in SIB’s bank accounts.

The Quincecare duty

The Quincecare duty is a duty placed on banks to refuse to comply with payment instructions given by the person mandated by the customer to give such an instruction when the bank is on notice that the instruction may be part of a fraud on the customer, unless and until the bank’s inquiries satisfy it that the instruction is validly authorised by the customer.

Was there any recoverable loss?

HSBC denied the application of the Quincecare duty in its entirety but the appeal to the Supreme Court focused solely on the question of whether, even if HSBC did owe the relevant duty of care and was in breach of that duty, the breach gave rise to any recoverable loss on SIB’s pleaded case. HSBC sought to strike out the claim, inter alia, on this basis.

It was agreed between the parties that although SIB did not go into liquidation until 15 April 2009, at the time the disputed payments were made SIB was heavily insolvent on a balance sheet basis as its liabilities vastly exceeded its assets.

In support of its application for strike out of the claim, HSBC argued that the payments did not increase SIB’s liabilities any further and therefore they did not make its net asset position any worse. SIB owed the money paid to investors who received it. The payments of £116m out of SIB’s accounts therefore reduced SIB’s liabilities by an equal amount and left its net asset position unchanged.

SIB sought to avoid that conclusion by arguing that if the £116m paid to investors had been retained in SIB’s accounts with HSBC, the sums paid to those investors in the liquidation would have been limited to a dividend of a few cents for each dollar invested i.e. rather than the early creditors being paid 100% of what they were owed prior to the liquidation, they would have only received a dividend in the liquidation (together with the late creditors in the creditors pool).

However, the majority of the Supreme Court disagreed with SIB and struck out the claim on the basis that SIB did not suffer loss. The fact remained that SIB would still only be discharging the same amount of liabilities (£116m) – just to different customers in different amounts.

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